Royal Gold Inc (RGLD) 2017 Q1 法說會逐字稿

Good afternoon, and welcome to Royal Gold's fiscal 2017 first quarter earnings conference call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Karli Anderson, Vice President of Investor Relations. Please go ahead.

Thank you Laura. Good morning. Welcome to our discussion of Royal Gold's first quarter fiscal 2017 results. This event is being webcast live, and you'll be able to access a replay of this call on our website. Participating on the call today are Tony Jensen, President and CEO, Stefan Wenger, CFO and Treasurer, Bill Heissenbuttel, Vice President of Corporate Development, and Bruce Kirchhoff, Vice President, General Counsel and Secretary. Tony will open with an overview of the quarter, and an operational update, followed by Stefan with a brief financial update. After management completes their opening remarks we'll open the line for a Q&A session. This discussion falls under the Safe Harbor Provision of the Private Securities Litigation Reform Act. A discussion of the Company's current risks and uncertainties is included in the Safe Harbor and cautionary statement in today's press release and slide presentation, and is presented in greater detail in our filings with the SEC. Now I will turn the call over to Tony.

Good morning, and thank you for joining the call. Today we are pleased to report record financial performance, as transactions we completed over the last several quarters are now contributing to our quarterly results. To start the call, I want to discuss two notable developments in the context of Royal Gold's vision and strategy on slide four. First I want to congratulate Centerra Gold for its successful acquisition of Thompson Creek Metals. Upon closing the Centerra/Thompson Creek deal, we amended our gold stream, to a gold/copper stream. While we are generally not interested in selling any f our gold interests, we knew this amendment was the key to a successful transaction. One of our strategic goals is to invest at the troughs. Copper was trading at near 20-year lows relative to gold at the time, which certainly made that decision easier. Long term, our revenue profile is still very much gold focused.

Protecting our investment at Mount Milligan was our highest priority in 2016, and we are happy to have closed this chapter successfully. The second development is our recent acquisition of a 3.75% royalty at Cortez Crossroads. This acquisition is consistent with our strategic goal to reinvest in long-lived properties. Cortez has been a company builder for Royal Gold. The mine is in its fifth decade of continuous operation, and has contributed revenue to Royal Gold for the last 25 years. I'll discuss how this new acquisition complements our Cortez portfolio in a moment.

Turning to our quarterly results on slide five. We set records for revenue in EBITDA, and essentially matched our prior volume record in the first fiscal quarter. Performance was driven by strong production at Pueblo Viejo, Mount Milligan, and Andacollo, as well as improved gold price which was up 19% over the prior year quarter. We completed our streaming transactions at Pueblo Viejo and Andacollo, Wassa and Prestea just a few quarters ago, and are already benefiting from their impressive production growth.

Turning to slide six, I summarized the notable operating updates at some of our principal properties. At Mount Milligan, Royal Gold maintained the value of its streaming interest following the Centerra transaction, and we will benefit from an established global operator and solid balance sheet. In Pueblo Viejo, we are please to see Barrick increase its production guidance, to a range of 670,000 ounces to 700,000 ounces of gold for calendar 2016. In addition silver recovery achieved its best quarterly performance to date through processed refinements and higher preheater availability. We expect to make our final $75 million advance payment to Rainy River in the coming weeks, as New Gold has reported that they have completed about 60% of construction progress and capital spending. New Gold continues to expect production at Rainy River at mid-2017. At our newest interest at Cortez Crossroads, Barrick's reports that they now have two shovels working in the pipeline complex, and Crossroads tripping has commenced again. Production from Crossroads is expected in 2018.

Turning to slide seven, we've highlighted some of our compelling long-term initiatives in our portfolio. As I've said before the beauty of our business model is that our shareholders benefit from these projects at no additional cost to Royal Gold. At Penasquito Goldcorp expects the New Piera at least to contribute beginning in 2019, with an increment to 100,000 ounces 140,000 ounces of gold production, and 4 million to 6 million ounces of incremental silver production annually. Remaining calendar 2016 production is expected to strengthen with Goldcorp now mining higher grade ore.

At Pueblo Viejo, Barrick is evaluating the opportunity to expand the tailings facility which could potentially convert a significant portion of nearly 8 million ounces of gold, and 44 million ounces of silver from resources to reserve. At Mount Milligan, Centerra reports that the tie-in of the secondary crusher is complete and commissioning is underway. The secondary crusher is expected to increase throughput to greater than 60,000 tons per day. Centerra is also talking about opportunities to increase gold and copper recoveries by adding additional floatation capacity, expanding regrind capacity, developing a geometallurgical model for ore blending, and leeching the floatation tails.

Finally at Wassa Prestea underground development continues, with efforts underway to achieve commercial production at both underground deposits in 2017. In the near term Golden Star reports that it has received a mining lease from its Manpon deposit, and is working to obtain an environmental permit. This is a small high grade deposit will which help bridge the gap between the open pit and the underground production at Prestea. We continue to like the exploration opportunity at Wassa and Prestea, as well as Golden Star's 1,200 square kilometer land position in the Ishante gold belt in Ghana. This is the largest land package of any company operating in Ghana. Although it's still too early to put Pasqualama on this slide of active projects, I would like to remind you of our leverage that we have to this project with a 5.45% NSR royalty on the Chilean side. It is good to see Barrick start to explore opportunities to bring this project back into their active development portfolio.

On slide eight, we thought it would be a good time to review the scope of our interest at Cortez. Royal Gold has owned interest in the Cortez area since 1987. Our royalties include interests in the western area of the Cortez land package, involving the deposits, pipeline, south pipeline, gap and crossroads. We also have an interest on the southern end of the gold rush deposit, which is just off the eastern portion of this slide. We know the mine very well, and many of you will remember that I was the mine manager in the early 2000s, and Mark Isto, our Vice President of Operations was the mine superintendent in the early 1990s. In my opinion, he deserves some partial credit for the discovery of pipeline.

Now turning to slide nine, we summarized the details of each of our interests, which encompassed both net value royalties and gross smelter return royalties. These royalties are additive, so we have a significant economic interest in many of the Cortez deposits. If you refer to Barrick's 43101 report issued earlier this year, you'll see that they are forecasting a nice increase in volume starting in 2018 from Crossroads, growing to over 0.5 million ounces annually through 2024.

Finally on slide ten, I'll recap our interest as the exploration stage gold rush deposit. In 2013, Royal Gold purchased a 1% royalty on the southern portion of this deposit depicted in green on the slide. Barrick completed a feasibility study on Gold Rush in 2015, and at that time they reported an 8.6 million ounce resource at 10.6 grams per ton. We estimate the mineralization within our royalty area is approximately 1 million ounces. Barrick reports that Gold Rush is one their most compelling exploration opportunities, and we're monitoring this development closely. Let me now turn the call over to Stefan for some financial review.

Thank you Tony. On slide 11, I've summarized a few of our financial highlights. As Tony mentioned earlier, the September quarter was an excellent one for Royal Gold. First quarter revenue of $118 million was up 59% from last year, and set a new record. Our strong revenue was driven by over 88,000 GEOs, an increase of 35% over the previous year, together with a robust price improvement that saw gold price increase to $1,335 per ounce, an increase of over 19%. Our effective tax rate was 21% for the quarter, generally in line with our tax rate from the most recent June quarter of 22%. DD&A was approximately $455 per for the quarter, on the low end of our guidance of DD&A per ounce between $450 and $500 for fiscal 2017. We ended the quarter with $470 million in total liquidity, this includes $165 million of working capital, plus $305 million of revolver capacity.

In addition to our $470 million of liquidity, we also have a significant amount of gold and silver stream inventory on the balance sheet that is recorded at cost. The market value of that inventory is about $40 million. We advanced $20 million to Golden Star in early October, and we are preparing to fund $75 million to New Gold for Rainy River in the next couple of weeks. That leaves just one remaining near-term commitment, which is the last $10 million advance for Wassa and Prestea, which we plan to fund in January 2017. We have now funded $1.1 billion in net investments over the last six quarters. During that period we only increased debt by $345 million, without issuing equity. I'll now turn the call back over to Tony.

Thanks, Stefan. Turning to slide 12 in closing, it was a solid and straightforward quarter. We were obviously pleased with the contributions our recent acquisitions have made to our record financial results. Our vision and strategy are unchanged. We will remain gold focused and opportunistic. We'll look to deploy capital and long-lived high-quality assets. Our latest investment at Crossroads ticks those boxes. It's a gold royalty in a historic gold camp known for its longevity, and was purchased at the right price. We are focused externally again, and continue to look for opportunities that provide our shareholders exposure to quality assets with upside potential. Operator, that concludes our prepared remarks. We would be happy to entertain some questions.

(Operator Instructions). Our first question is from Josh Wolfson of Dundee Capital Markets.

Tony, first question for you. When you look at the balance sheet, which is more or less projected to improve substantially following the final New Gold payments, and you mentioned, no material capital requirements, how are you looking to deploy excess cash, I guess what sort of liquidity do you see being available for deals? In the event that the market softens, at what point do you start to consider looking at increasing the dividend?

Josh, thank you very much for the multiple questions there. Hopefully I'll be able to catch them all. Let me start with our current liquidity at about $470 million. We very much are looking at adding new pieces of business, so the first, after we get done funding our current activities that we have committed to, at Wassa, Prestea, and Rainy River, we will turn our focus then to adding new pieces of business, as well as paying down our credit facility. We have $345 million drawn on our credit facilities, so there's plenty of opportunity for us to maintain a very strong balance sheet, and continue to grow the Company, but that's where we'd look to.

As you are likely aware, we usually look at our dividend policy in our November meeting of each year, which is just coming up in a couple of weeks. We've been able to pay a dividend ever since 2000, and grow it ever year since 2001. We take a lot of pride in that. I can't front-run that, but I can tell you that it is part of our strategic elements that we discuss with the Board, to pay a growing and sustainable dividend. That's about all the further I could comment on that until the Board has a chance to consider a further dividend.

Okay. Another question for Stefan, if I can sort of squeeze two in there. When it comes to New Gold projected receivables, are you expecting to have any sort of delay between production at the site level and revenues that you will receive?

Yes. Josh, thanks for the question. As I think about New Gold, we'll start to receive our first revenue from New Gold sort of mid to late next year. I don't believe there will be any delay in our revenue recognition like there is on Mount Milligan, because Mount Milligan is shipping a concentrate, I'm looking at Tony and Bill to confirm, but at Adore there should be a much faster clearing time for us. We'll develop more of a commentary on that as we get closer to production.

I will just add another comment there, I think we're on a monthly payment schedule from Rainy River. So our other projects, some of our projects like Pueblo Viejo are on a quarterly basis, so we should see more of that more regularly.

Okay. The last one is in terms of the working capital outflows this quarter and last quarter, what was the source of that? I guess are you expecting a reversal in the coming quarters?

Sure. So you're looking at our cash flow statement. We had a couple things going on this quarter. As you know, we built inventory and we also had an increase in royalty revenue. Our royalty revenue we collect those receipts after the quarter. So both royalty receivables and inventory which was about $9 million of working capital. And then we also had some tax payments during the period that amounted to about $10 million that also impacted that working capital. I don't see those going on in the future. I think we'll get to a point where we level out that inventory build. Particularly in the last quarter we saw higher inventory from Mount Milligan, which was more timing, but also continued growth in the Pueblo Viejo stream that caused that inventory build. I don't expect those same items to happen in the future.

Just a follow-on that as well. Stefan mentioned in his prepared remarks that the inventory now in our international business has grown to about $40 million. Of course that's not recognized, that's recognized at cost on the balance sheet, so you don't see the true value of that in the current assets.

Got it. Okay. Thank you very much for answering those questions.

Thanks, Josh.

(Operator Instructions).

Well Operator, I will take that as a sign that it was a very clean and straightforward quarter, and people are understanding our message clearly. I would just like to thank everybody for joining us today. We are very much excited about our record performance, and we look forward to reporting our next quarter in due course. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.